The Hidden Tax of Deficit Spending
There is only ONE way to reduce the symptoms of mounting debt and widening budget deficits: the federal government MUST decrease spending and must do it soon. While this may seem like an intuitive concept, both political parties have failed significantly to control the problem of
over-spending. Democrats believe they can tax the nation into fiscal stability, and Republicans believe cutting taxes enable Americans to afford a greater degree of public spending. As a result, both parties share the culpability of setting the country on a fiscally unsustainable path.
Policymakers have inherently sought to address issues like balancing the budget, contracting deficits, and reducing overall national debt. While nobody would deny that these are economically corrosive conditions that need to be confronted, policy objectives that attack the symptoms rather than the disease have been ineffective. The unilateral root-cause responsible
for the by-product of effects that continue to threaten financial well-being has been excessive spending relative to economic growth. When government expenditures take up a larger share of the economy, less capital can be deployed toward new business expansion without necessitating
more investment from abroad.
In the first place, taxation should never be the primary mandate of fiscal policy required to balance the budget. Regardless of tax policy, if the federal government acquires more revenue, politicians will inevitably spend more money, offsetting the surplus of ‘benefits’. Alternatively, if government collects less revenue, individuals should necessarily have more disposable
income, thereby requiring fewer public services. Thus, the overriding directive in achieving a balanced budget should ultimately come from the spending side of policy rather than taxation.
Nevertheless, the federal government has engaged in what they consider to be fiscally responsible policies like passing tax reform and balanced budget amendments, raising the debt ceiling, and keeping interest rates low enough to reduce debt repayment. However, by choosing to target the effects instead of the causes, politicians have concealed ways to usher in more earmark spending and special-interest provisions. This has effectively enabled legislators and bureaucrats to impose the real ‘tax’ on Americans — the ‘hidden tax’ of deficit spending.
Despite being a latent tax, excess spending remains the most dangerous form of taxation since it is disguised and exclusively managed from Washington. Anytime government spends in excess of what it takes in, it must balance the budget by levying one form of taxation or another. Of course, policymakers won’t label implicit forms of taxation as a tax. Instead it will be classified
as borrowing. However, funds used to balance the budget must eventually be reimbursed, which subsequently must be financed through taxation. Moreover, if spending isn’t applied to old debt, yhen new spending means more borrowing, which, in turn, means more spending. Additionally, the inflationary effect that develops from monetizing the debt will act as a hidden ‘tax’ on earnings. Any decrease to disposable income, whether by inflation or taxation, carries the same effect. The trillions of dollars of treasuries that fill the Fed’s balance sheets used as credit to expand the money supply must one day be repaid and financed through tax revenue. Therefore, budget deficits induced by excess government spending is the ‘true’ tax imposed on citizens.
Ultimately, government grows at the expense of private investment. When government spends more, private individuals have less to invest, resulting in lower productivity, increased prices, and a greater need for public services. Nobody spends money as carefully as when people spend their own. In the private sector, continuing to operate by unfunded spending is considered
fiscally irresponsible. Why shouldn’t the federal government be held to the same standards we hold ourselves to?
